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Implications of the New Growth Theory to
Agricultural Trade Research and Trade Policy
Proceedings of a Conference of the
International Agricultural Trade Research Consortium
Edited by Terry L. Roe
April 1997
The International Agricultural Trade
Research Consortium
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Implications of the New Growth Theory to
Agricultural Trade Research and Trade Policy
Proceedings of "Theme Day" session of the
International Agricultural Trade Research Consortium
Annual Meeting, December 1996
Edited by Terry L. Roe
April 1997
Roe, Terry L., editor (1997) Implications of the New
Growth Theory to Agricultural Trade Research and
Trade Policy. St. Paul, Minnesota: University of Minnesota,
Department of Applied Economics, International Agricultural
Trade Research Consortium.
Additional copies available from the
International Agricultural Trade Research Consortium
Preface
The International Agricultural Trade Research Consortium (IATRC) is a group of 160
economists from 16 countries who are interested in fostering research related to international
trade of agricultural products and commodities and providing a forum for the exchange of ideas.
Each winter the IATRC sponsors a "Theme Day" discussion on a topic related to trade and trade
policy.
This volume contains the four main papers and one discussion paper that comprised the core of
the Theme Day session of the December 1996 meeting of the IATRC in Washington, D.C. titled,
Implications of the New Growth Theory to Agricultural Trade Research and Trade Policy.
These papers should be viewed as "revised working papers." Policy recommendations and
opinions expressed by the authors do not necessarily reflect those of the IATRC or its funding
agencies.
The activities of the IATRC receive partial support from the Economic Research Service and the
Foreign Agricultural Service of the US Department of Agriculture (USDA), from Agriculture
and Agri-Food Canada, and from the IATRC members' home institutions.
The IATRC acknowledges the assistance of Laura Bipes of the University of Minnesota in
arranging the conference and the work of Dr. Terry L. Roe, University of Minnesota and Mathew
Shane, ERS/USDA in organizing the Theme Day program agenda.
A complete list of past IATRC conferences and related publications, including proceedings,
commissioned papers and working papers, is available from Laura Bipes, Administrative
Director, Department of Applied Economics, 1994 Buford Avenue, Room 231 ClaOff,
University of Minnesota, St. Paul, MN 55108 or from the IATRC web site at:
http://www.umn.edu/iatrc
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Table of Contents
Preface ...................
List of Contributors ....
........... iii
.........................................
....................
........... ...........
Vi
Forward
Terry L. Roe..................................................
............... vii
1.
The New Growth Theory: Its Logic and Trade Policy Implications
Richard E. Baldwin and Elena Seghezza....................................1
2.
R&D Spillovers, Economic Growth, Convergence, andDivergence:
A Time-Series Approach
Hamid Mohtadi and Anusua Datta.............................................37
3.
On Turkey's European Trade Policy: How Desirable is A Status Quo
Jean Mercenier and Erinc Yeldan...................................................... 63
4.
A Dynamic CGE Model of
R&D Based Growth in the US. Economy:
An Experiment Using the New Growth Theory
Xinshen Diao and Terry Roe ...........................................................
5.
93
Implications of the New Growth Theory to Trade, Trade Research
and Trade Policy
G. Edward Schuh ...................................................................... .131
List of Contributors
1.
2.
Richard E. Baldwin
Graduate Institute of
International Studies
11A, Ave de la Paix
CH-1202, Geneva
Switzerland
6.
G. Edward Schuh
Freeman Chair in International Trade
and Investment Policy
University of Minnesota
Humphrey Institute of Public Affairs
l9th Ave S
Mpls., MN 55455
E-mail: geschuh~hhh.umn.edu
301
Anusua Datta
Univ. of Wisconsin - Milwaukee
Dept of Economics
Milwaukee, WI 53706
3.
7.
Xinshen Diao
USDA, ERS
ilA, Ave de la Paix
CH-1202, Geneva
Switzerland
Room 712e
1301 New York Aye, NW
Washington, DC 20005-4788
8.
E-mail: xdiaoecon.ag.gov
4.
Hamid Mohtadi
Univ. of Wisconsin - Milwaukee
Dept of Economics
Milwaukee, WI 53209
E-mail: mohtadi@csd.uwmn.edu
5.
Terry Roe
University of Minnesota
Dept of Applied Economics
Elena Seghezza
Graduate Institute of
International Studies
1994 Buford Avenue
St. Paul, MN 55108
E-mail: troe~deptagecon.umn.edu
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Erinc Yeldan
Bilkent University - Turkey
Dept of Economics
06533 Ankara,
Turkey
Forward
This volume contains the four main papers and one discussion paper that comprised the core of the
Theme Day session of the December 1996 meeting of the IATRC in Washington D.C. titled
Implications of the New Growth Theory to Agricultural Trade Research and Trade Policy. The four
papers are:
The New Growth Theory: Its Logic and Trade Policy Implications, by Richard E. Baldwin and
Elena Seghezza,
R&D Spillovers, Economic Growth, Convergence, and Divergence: A Time-Series Approach by
Hamid Mohtadi and Anusua Datta,
On Turkey's EuropeanTrade Policy: How Desirable is A Status Quo by Jean Mercenier and Erinc
Yeldan,
A Dynamic CGEModel ofR&D Based Growth in the U.S. Economy: An Experiment Using the New
Growth Theory by Xinshen Diao and Terry Roe.
The discussion paper is:
Implications of the New Growth Theory to Trade, Trade Research and Trade Policy, by G. Edward
Schuh.
These papers should be viewed as "revised working papers." Briefly, their focus and relationship
is the following:
The Baldwin and Seghezza paper provides an overview of theory of endogenous growth with special
emphases on trade, and with relatively more weight placed on the Romer R&D model of growth.
Consistent with the Theme Day focus, they simplify the models to their essential features in order
to show their strong policy - growth - trade implications. Emphasis is placed on the Romer type of
model because of its relatively more clear structural features that identify the nature of non-rivalness
and the partial excludability of new ideas, and the imperfect competition which is required in order
to provide the necessary incentives for consumers to forego consumption and invest in new firms.
Nevertheless, they conclude that little is known of the causes of growth which makes policy
conclusions hard to draw. This is an excellent paper with an appendix to help those not familiar with
these models to more quickly become familiar with their salient features.
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The Mohtadi and Datta paper attempts to focus on the "facts" relating to endogenous growth, such
as the presence of technological spillovers; is there evidence in support of one model relative to
another and what is the nature of the convergence, divergence debate. The empirical section of their
paper finds support for technological spillovers among OECD countries and find evidence in
support of growth convergence. For other countries, particularly non-OECD countries, they find
evidence for divergence.
I find it useful to think of the Ramsey-Koopmans-Cass model as an antecedent of the Mercenier and
Yeldan framework, generalized and extended in two key ways. It is generalized in that it entails a
global world economy with many final commodities and intermediate factors of production. It is
extended in the sense that the new trade theory, with increasing returns to scale in the non-farm
sector and consumer demand for product variety of the Dixit-Stiglitz type, is adapted to this inter
temporal framework. Then, they calibrate the parameters of the analytical model to the economies
of Turkey, Europe and the rest of the world as an aggregate. While this paper does not focus on
endogenous growth per se, the model incorporates many of the key concepts common to models of
endogenous growth and it reflects the state of the art in dynamic applied general equilibrium analysis
of trade policy issues.
The fourth paper is an empirical application of the Grossman-Helpman-Romer model to an actual
economy, the US. The empirical model considers several final goods sectors, employs the
traditional Armington structure to account for intra-industry trade, and utilizes the social accounting
matrix structure to calibrate many of its parameters. Consequently, this paper "fits nicely" with the
Baldwin and Seghezza paper in that it extends and generalizes their discussion of the R&D based
models while also providing some orders of magnitude to the growth effects of various policies. The
theory upon which the empirical model is based makes a modest theoretical extension; we allow for
the accumulation of differentiated capital, and as a result the model displays transition dynamics.
The paper relates to the contribution of Mercenier and Yeldan in that we use the Dixit-Stiglitz
structure to depict the monopolistic behavior of suppliers of intermediate capital variety. We refer
to the paper as "An Experiment.." since only one source of growth is considered, and as the first
paper noted, little is known about the causes of growth.
Surely, much remains to be done, both analytically and empirically in this area. Yet, it is our notion
that the papers provide insights into the nature and direction that a body of future economy-wide
analysis of trade and trade policy is likely to take. As such, the papers together capture a whole that
is greater than just the sum of the individual parts.
Terry L. Roe
e-mail:troe@dept.agecon.umn.edu
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